Q&A: Chinese Presence Helps Africa

Yang Guang, director of the Institute of West Asian and African Studies of the Chinese Academy of Social Sciences, says that China and the United States "do not have strategic conflicts" in Africa. He notes that Chinese companies are attracted to the improved investment environment in Africa, but they make up only a fraction of total investment on the continent. Chinese companies are becoming more aware of principles of corporate social responsibility, Guang says. He states that China's investment in Sudan has helped the Sudanese people by allowing the country to develop economically.

The media likes to talk about China's thirst for African oil, but oil investments are just one part of China's investments on the continent. What other areas are Chinese firms involved in?
Chinese investment is involved in many sectors. At the beginning it was concentrated on a few sectors, such as resource development, including oil, agriculture, and fishing. But nowadays you can see Chinese investment in many manufacturing industries, such as textiles, consumer electronics, and China has also invested in tourism, telecommunication, and construction of roads. So it is much broader than it used to be.

China is a latecomer in the investment market in Africa. Chinese enterprises began investment in Africa in the late 1980s, but the value of investment has increased rapidly. So by the end of 2006, the accumulated amount of Chinese investment in Africa totaled 11.7 billion U.S. dollars. This is not a big number, if you compare it with the total direct investment or inflow into this continent. If you look at the 2005 figure, the total Chinese direct investment in Africa was 400 million U.S. dollars, but that made up only 1.3 percent of the total inflow of direct investment in Africa that year. The amount of Chinese investment in Africa should not be overestimated.

Of these investments, are the bulk of them from state-owned companies?
I don't have the exact figure about how much state enterprises invest in Africa and how much the private sector contributes to it, but if you look at the number of enterprises, that may tell you something. China has, in total, about eight hundred enterprises investing in Africa, but out of this total number, only a little bit more than one hundred enterprises are state owned. The rest of them all come from the private sector.

There's been a lot of criticism of China's policy of non interference in the countries it invests in, but what about the practices of these private enterprises? How can you characterize their investment philosophy and the way that they operate in Africa?
For the private enterprises, their behavior when investing in Africa is basically driven by some commercial motivations, like enterprises worldwide. First, this is partially because of the change of the domestic market in China. In recent years, we can see a kind of relative saturation of the domestic market with some labor-intensive products, such as textile and consumer goods. So it is harder for private businesses to sell their products in a domestic market at a satisfactory price.

On the other hand, they are also attracted by the improvement of the environment for investment in Africa, because in recent years the entrepreneurs in China have become aware that Africa has changed a lot. First, this is a continent with a great potential of resources. Secondly, this continent has been maintaining a moderate, fairly high, gross rate for about a decade. And thirdly, African countries are increasingly opening up to the outside world and welcoming foreign direct investment. So, in this case, Chinese enterprises are attracted.

There is a movement among Western companies toward better business practices and the practice of corporate social responsibility. Is that something these Chinese companies are adopting as well?
For the Chinese enterprises, there's also a growing awareness of this importance. This is not only for Africa, but they are also aware that without achieving a kind of win-win solution, without helping the local people to see the result of development, investing countries will not sustain their achievement in this continent. So we can see, especially the large-scale Chinese companies, they have already begun to pay attention to this, and are doing a lot of things in this regard. For instance, many of them are involved in building schools and hospitals for the local people where they have their investment, and they also pay attention to the localization of labor, to hire more local laborers.

According to Chinese statistics, last year the total number of Chinese in Africa, including those who do not do business, the total number was 80,000. But the same year, last year, the [number of] jobs created for local people was about 70,000. Seventy thousand jobs were created for African countries by investment in this continent by Chinese companies. What is new is that some Chinese big firms, such as CNPC, the leading oil company, have begun their first reports of corporate responsibility since last year. So things are coming and I think they will pay more attention in the future. If they want to be good competitors in the market, they will have to fulfill better their corporate responsibilities.

What are some of the challenges that China has encountered as a relatively young investment presence on the continent?
There are a lot of difficult things. First, a lot of enterprises in China are not familiar with this continent, and that is why they often come to us for advice and consultation about everything—from the law of investment, to the local customs—this is something they have to learn. Another problem is that they are not familiar with the kind of labor union system in Africa, the labor union system is quite developed in some African countries, but this system is a bit different from the Chinese labor union system.

Some of them also face the problem of the frequent changes of policies, and this is also something that they have to be prepared to face. Language is also an important issue, because a lot of Chinese companies don't have enough staff speaking good English or French or Portuguese to communicate with the local people. So this is also something they have to improve, and they have to be more familiar with the legal system of their recipient countries. So there are many, I won't say difficulties, but a lot of areas where they have to learn.

Many people are characterizing the United States and China as competitors in Africa. What is your perspective on that?
I don't think we can say that in an absolute way, because of course we cannot avoid business competition in several fields, but if you look at the issue as a whole—first, China and the United States do not have strategic conflicts in Africa. Secondly, if you look at business sectors where China and the United States invest, there is kind of a division of labor, because the United States is very good at investing in resources development and industries—oil, gas, minerals. Of course China also invests in these fields, but China also invests in a lot of labor-intensive industries—textiles, consumer electronics. And in those sectors the Chinese enterprises have a competitive advantage and the competition with the American business circle in those sectors is not that visible.

And even for resource development, we cannot consider it to be a kind of strategic competition, it is just competition at business level. China, the United States, and African countries have shared strategic interests, because China and the United States are both oil importing countries, so nowadays we face the same challenge in the international oil market, with a very high price and with the possibility of supply disruption.

Because both countries are major consumers and importers of oil, we have to contribute together to increase the producing capacity of oil. If the world has larger producing capacity, then both the United States and China will be much safer. And if you look at the interests of Africa, for many of them oil and gas represent the means for capital accumulation for their development. And they don't have the technology, they don't have the financial capacity, so they need foreign companies to transfer technology and to invest in their countries to develop this development potential.

But one might also argue that it places their strategic interests at odds. For instance, somewhere like Sudan—it's created somewhat of a foreign policy conflict there.There are different understandings about the issue of Sudan, but the Chinese understanding is for a country as poor as Sudan, the first priority is the basic needs of the people, and to see their living standards increase. Economic development is the top priority for this country. Therefore, if we want to help these people to resolve their problems, then we have to start by resolving their development problems.

It has been true, in my view, that in practice the Chinese understanding is correct, because during the past few years this country went from a net oil importer to a net oil exporter. The fiscal budget has improved significantly, the economic growth rate is also rapid and, interestingly, the oil income has also contributed to the resolution of domestic conflicts. If you look at the CPA [Comprehensive Peace Agreement], you may find that one of the components is the distribution of oil income. It is distributed on the basis of 50-50, so in other words the black people in the south can also benefit from this and poor people can also benefit from this result of oil development.

Chinese companies are very proud of this contribution to the Sudanese people. The United States argues that this is not a good regime, with a dictatorship and things like that, but Chinese foreign policy is non interference in domestic affairs and actually it is very hard to see whether a regime is a dictatorship or not. You have to find a commonly acceptable standard, so if this kind of standard does not exist, you cannot impose a one-sided view onto the others.

I believe that, due to the different cultural backgrounds, due to the different levels of economic development, it would be hard to find a uniform model of political development for the African countries. The best way is probably to observe and respect the efforts of the African countries in exploring their own way of political development. Otherwise, if you try to impose a model on them, there is little chance to succeed.

There have been quite a few reports saying that Chinese firms sell military equipment to the Sudanese government, and some people say that equipment is being used for violent purposes in Darfur.China is an exporter of conventional arms, but this is done in the framework of international law.

I don't think China has provided conventional arms to the Sudanese government in order to fight against the tribes in Darfur. China has not done that. You can see weapons made in China in many places of the world, and it is very hard to say how they get these weapons. I don't know if the Sudanese government got the weapons directly from China, they may have gotten them from anywhere. So it is hard to say—if you find a weapon made in China, it doesn't mean that China supports this kind of war. This is not logical, because there are a lot of transfers of weapons worldwide.

Do you think China offers a viable model of economic development for Africa?
If you look at the Chinese policy toward Africa, now officially announced by the government, there is a new component, which is mutual learning at the cultural level. Experience of development is also part of the cultural things. I don't think China is a model of development for African countries, because African countries have their own national circumstances. They cannot copy the others, what they can do is just explore their own ways of development.